TREASURIES-Prices follow Bunds lower ahead of debt supply

* German ZEW sentiment index rises sharply for December
* Treasury to start week's auctions with 3-year note sale
* Fed expected to announce more Treasuries buying on Weds
By Chris Reese
NEW YORK, Dec 11 U.S. Treasury debt prices eased
on Tuesday, taking cues from lower Bunds after an unexpectedly
strong reading on German investor sentiment, and as the Federal
Reserve was set to begin a two-day policy meeting.
Investors were also pushing for price concessions heading
into $66 billion of U.S. government debt auctions this week,
while Wall Street was on target to open higher, which undermined
the safe-haven allure of Treasuries.
Calmer Italian debt markets after a sell-off on Monday
triggered by Prime Minister Mario Monti's decision to step down
early also took the shine off safe-haven assets.
"We are seeing a little bit of a set-up for supply, and we
came in weak thanks to Germany's investor sentiment index which
climbed unexpectedly higher so we had some spillover from
declines in German Bunds," said Kim Rupert, managing director of
global fixed income analysis at Action Economics LLC in San
Francisco.
Germany's ZEW economic sentiment index jumped to 6.9 in
December, far higher than the -12.0 forecast and the previous
reading of -15.7.
The risk-on trade was also supported by reports of a pick-up
in the pace of talks to avert the U.S. "fiscal cliff" of steep
tax hikes and spending cuts set for the new year, although
Republicans and Democrats remain far apart.
Benchmark 10-year Treasury notes were trading 9/32 lower in
price to yield 1.65 percent, the highest in over a week and up
from 1.63 percent late Monday, while 30-year bonds
were 22/32 lower in price to yield 2.83 percent from 2.80
percent.
After its two-day meeting, the Fed on Wednesday is expected
to say it will buy $45 billion per month of longer-dated
Treasuries beginning in January to replace its "Operation Twist"
stimulus program, which expires at the end of December.
The Treasury will sell $32 billion in three-year notes on
Tuesday, followed by $21 billion in 10-year notes on Wednesday,
and $13 billion in 30-year bonds on Thursday. Traders typically
will push for lower Treasury prices heading into such auctions.
Ahead of Tuesday's sale, the when-issued three-year note
yield, considered a proxy for where the yield will
print at auction, was trading at 0.324 percent, compared with
three-year yields on the open market at 0.332 percent.